If you've been paying attention to some of the more peculiar side-effects of the global recession, you may have noticed that Canadians have been behaving uncharacteristically uppity of late. This new-found swagger is a result of Canada having the dubious distinction of being the "least-bad-rich-world-economy" – an honour that would be rather unimpressive if the rest of the G8 wasn't so persistently gloom-stricken.

While most wealthy economies are still stagnant, in decline or disrepair, the Canadian economy has outpaced allcomers and will avoid the possibility of a double-dip recession that continues to haunt the US. But beyond the chorus of self-congratulatory backslapping coming from Ottawa, there has emerged a new and immediate threat of economic crisis that is being willfully ignored by Canadian politicians.

This November, in an effort to increase tax revenue, California will hold a referendum on whether or not to legalise the cultivation and use of marijuana. If passed, the change in law would be devastating to the Canadian economy, halting the flow of billions of dollars from the US into Canada and eventually forcing hundreds of thousands into unemployment.

Over the past 20 years, Canada has developed a substantial and highly profitable marijuana industry that is almost completely dependent on the US market. Between 60 and 90% of the marijuana produced domestically is exported to the US via cross-border smuggling operations. It's exactly like the alcohol prohibition of the 1920s, only far more sophisticated and more profitable. The establishment of a legal industry based in the US would likely cripple these exports overnight.

Due to its contraband nature, it's difficult to determine exactly how much marijuana contributes to the Canadian economy, but a number of agencies and economists have estimated that it is in the range of $20bn per year (£12.5bn), making it Canada's single largest agricultural product. The bulk of production is based in British Columbia, where it employs a labour force of 250,000, roughly one in 14 adults. Although strict financial controls are often credited as the source of Canada's economic resilience, it's worth pointing out that marijuana production often insulates communities from larger economic phenomenon.

My hometown, Nelson, British Columbia, is an example of such a community. After the lumber industry entered into decline, Nelson was able to make the transition from a typical rural lumber town into a thriving arts and mountain sports hotbed, due in part to the wealth generated by marijuana growers. If one were to have spent the last three years in this idyllic mountain hamlet, the economic crisis would have been barely noticeable.

All over Canada there are comparable situations. Countless cities, including major centres like Vancouver, would have been far worse off if marijuana cultivation hadn't filled the employment vacuum left by declining resource-based industries.

But the current system only works if it exists in contrast to American prohibition. If Californians vote to legalise, the only way for Canada to avoid taking a massive economic hit would be to follow suit, legalising on a national level and taxing the industry a la tobacco or alcohol.

Ironically, support for legalisation is stronger in Canada than it is in California. Canada's most prominent rightwing thinktanks have long supported legalisation, as do the majority of Canadians. But since the Conservative prime minister, Stephen Harper, formed a minority government in 2006, drug reform has been wiped off the agenda and the gears have grinded into reverse. In a bizarre twist that defies all rational thought, the Conservatives have decided they want to go in the opposite direction of the Canadian voter and emulate outdated Republican drug war policies that have already proved catastrophic in the US.

The Conservatives have proposed legislation that would introduce mandatory minimum prison sentences for marijuana producers. If passed, the legislation would result in spending billions in order to put more people in prison – the exact scenario that lead California into severe debt and towards legalisation. Even more stupefying, police in Montreal recently raided a "compassion centre" that legally distributes medicinal cannabis, and Conservative politicians have started calling for medicinal centres to be shut down across the country.

Meanwhile, the Liberal opposition, who when still in power tabled a decriminalisation bill, have rolled onto their bellies and supported Harper's crackdown on pot. It's a startling departure from the situation seven years ago, when Canada was a global leader in marijuana reform. Back then, there was the political will and the only obstacle to progress was the Bush administration.

But the only government worth blaming today is our own. What the world will get from Canada now is a demonstration of what to avoid – the spectacle of a nation intentionally sabotaging itself for reasons that don't even deserve to be labelled ideological. Looks like we might get that double dip after all.